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Scope of the Powers of Trustees to Determine Mode of Payment of a Death Benefit to a Major Beneficiary

In the recent case of Mahomed v Argus Provident Fund, the Pension Fund Adjudicator had to decide if the allocation and distribution of a death benefit was lawful and equitable. More specifically, the Adjudicator has to decide if a death benefit due to a major dependant may be used to purchase an annuity, where prior consent was not obtained from the major dependant.

In this case, the complainant's (Mahomed) mother was a member of the respondent provident fund (Argus) at the time of her death. Mahomed and her sister were identified as sole dependants of the deceased. Upon investigation, it was found that the sister was unable to manage her own financial affairs and required supervision. The fund allocated the majority of the death benefit to purchase an annuity to provide a monthly income for both dependants.

Mahomed disputed the allocation and distribution of the death benefit on the basis that she had been nominated as a beneficiary and she had not given the fund consent to purchase the said annuity.

The adjudicator looked at Section 37C(2) of the Pension Funds Act 24 of 1956, which regulates the mode of payment of benefits to dependants, and provides for payment to be effected either in the form of a cash lump sum or into a beneficiary or trust fund. Notably, the section does not make provision for the purchase of an annuity as a mode of payment.

The adjudicator went on to look at Section 37C(4), which regulates benefits payable to a major dependant; the general principle being that, in instances where a major dependant's benefit allocation is not paid in one lump sum, their written consent is required. In this case, prior consent was not obtained and the adjudicator, therfore, found that Argus did not take the relevant factors into account and the death benefit was not properly allocated to the dependants. The board's decision on the allocation and distribution of the death benefit was thus set aside.

Trustees are cautioned when electing payment, in ensuring that the method of payment is in the best interest of the dependant and that the required consent of the dependant is obtained in instances where a cash lump sum is not paid.

Compare jurisdictions: Arbitration

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